The Office of Tax Simplification (OTS) has published its second report on capital gains tax after the Chancellor, Rishi Sunak, called for a review of the tax.

The OTS’s first review, ‘Simplifying by Design’ (published in November 2020) highlighted ways capital gains tax (CGT) can distort behaviour. It also set out a framework of policy choice about the design of the tax for Government.

The second report, ‘Simplifying Practical, Technical and Administrative Issues’, covers a wide range of areas, including getting divorced and moving home.

Published in May this year, the report also looks at running or investing in a business, and issues affecting land transactions. Plus, it shines a spotlight on the low level of public awareness of CGT and explores how the administrative systems could be improved for taxpayers.

There are 14 recommendations in the second OTS report, including:

  • Integrate the different ways of reporting and paying capital gains tax into the new Single Customer Account, making it a central hub for reporting and storing CGT data. The OTS says this would ease the administrative burden for around 500,000 people who file returns of capital gains in a typical year.
  • Formalise the administrative arrangements for the ‘real time’ CGT service, effectively making it a standalone capital gains tax return that can be used by agents.
  • Consider extending the reporting and payment deadline for the UK property tax return to 60 days. Alternatively, authorise estate agents or conveyancers to distribute HMRC-provided information to clients about these requirements. The OTS describes the current 30-day deadline as “challenging” for many taxpayers.
  • Consider adjusting private residence relief (PRR) to cover developments in a taxpayer’s garden that the taxpayer then moves into.
  • Extend the length of time divorcing or separating couples can transfer assets between them without triggering an immediate CGT charge, to the later of:
    • the end of the tax year at least two years after the separation event
    • any reasonable time set for the transfer of assets in accordance with a financial agreement approved by a court or equivalent processes in Scotland.
  • Explore ways of removing inappropriate corporation tax or capital gains tax charges where a freeholder is in effect only extending their own lease.

Our thoughts

Capital gains tax is a complex area. And because it’s a tax you may only come across occasionally during your lifetime, it’s generally not well understood.

It would be helpful if there was more awareness of CGT. It would also be useful if the tax was simplified, so people who don’t work in the accounting, financial or tax sector can understand it better.

But how realistic it is to successfully simplify CGT and make it more consistent remains to be seen. In the meantime, it’s important that you, as a taxpayer, take professional advice to avoid the many pitfalls that can arise.

What happens next?

The recommendations from the OTS will be considered by the Government, but it’s not known when that will happen.

We also don’t know whether the suggestions will be acted upon and to what extent. Some of the recommendations may be included in Government policy, some could become longer-term objectives, and some may be dismissed completely.

Helping you with your tax

For professional tax advice, call our team on 07813 434195 or email stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation